The World Cup goes to Brazil – at least as far as early retirement is concerned

The eyes of the world are currently on Brazil. June 12 will see the world's most successful footballing nation open the World Cup on its own soil with a match against Croatia. Brazil has taken five titles and produced some of the greatest stars in international football, including Pelé, Ronaldo and Kaká. Brazilian players can be found in the most prestigious clubs in the world, like Dante, who plays for FC Bayern München. A sixth World Cup is not unlikely, with Felipe Scolari's team said to have a good chance of taking the title.

Besides great soccer players, Brazil has another strong feature: the possibility of early retirement. If Pelé were an average Brazilian, he would have retired at the age of only 55 – ten years before reaching the statutory retirement age of 65. By way of comparison: the European early retirement champion is Austria. Although the statutory retirement age in Austria is 65, people tend to retire aged only just under 59 on average. Germans work until the age of 63, with retirement commencing successively at 67 by law.

Favorable demographic situation changing fast

Finally, several groups receive special perks: Almost all civil servants can retire on full pay. Teachers are allowed to retire five years earlier than other workers, on the same terms. As a result of all these generous rules, average Brazilians receive a pension of 70 percent of final pay.

This leads to a federal budget that is increasingly used to pay for pensions. Currently, Brazil can still cope with its high expenses, but the government is relying on a favorable demographic situation – and this is changing fast. At the moment Brazil’s population is very young with a media age of 31 years – eight years younger than the US and 16 years younger than Germans (12 years younger than Austrians). That is because around 1970 Brazilian women on average had 5.8 children. Today these children are of prime working age. However, average women today only have 1.8 children – a threefold decrease over four decades. Therefore Brazil is experiencing a short-lived, golden moment with a very low old-age dependency (OAD) ratio: According to UN calculations, those aged 65 and over number only about ten percent of those of working age (15–64 years). In Germany the corresponding ratio already now is almost 32 percent (Austria: 27 percent). However, Brazil already spends almost twelve percent of GDP on public pensions. In comparison Germany uses about eleven percent (Austria 14.1 percent). And by 2050 there will be 52 million Brazilians aged 65 and over supported by only 144 million people of working age. Thus Brazil’s OAD ratio will more than triple to 36 percent.

Therefore Brazilians should prepare for necessary adjustments: The government won’t be able to avoid to cut services or limit early retirement options. It will make sense for each Brazilian to increase the private old age provision in order to live well in retirement.

So Brazil might well be holding the World Cup in its hands for the sixth time in a few weeks' time. It should not be starting necessary pension system reforms in the 90^th minute though.

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